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April 2010
STEEL April 2010
Contents
Advantage India
Market overview
Industry infrastructure
Investments
Opportunities
Industry associations
2
ADVANTAGE INDIA
Steel April 2010
Advantage India
Advantage
India
Contents
Advantage India
Market overview
Industry infrastructure
Investments
Opportunities
Industry associations
4
MARKET OVERVIEW
Steel April 2010
Market overview
The production of total finished steel (alloy and non-alloy) registered a compound annual growth rate
(CAGR) of 6.7 per cent between 2004−05 and 2008−09, while consumption increased at a faster rate
of 9.3 per cent during the period.
43.5 8
41.
40.0 36. 4
4
30.0
20.0
10.0
0.0
2004-05 2005-06 2006-07 2007-08 2008-09
Production Consumption
5
MARKET OVERVIEW
Steel April 2010
Product segments
Steel
Exports
Steel exports
6.0
5.2 5.1
tonnes
In million
4.0 3.8
3.0
2.0
1.0
0.0
2004-05 2005-06 2006-07 2007-08 2008-09
• The value of steel exports declined between 2007 and 2009 due to the increase in domestic
consumption and relatively lower demand from importing countries.
• The domestic demand for steel is estimated to grow at an annual average rate of more than 10 per
cent in the next five years.
80.0
64.4
59.8
tonnes
in million
20.0
0.0
2004-05 2005-06 2006-07 2007-08 2008-09
Capacity Production
8
MARKET OVERVIEW
Steel April 2010
• The steel production capacity is estimated to reach 124 million tonnes by 2011-12.
• In 2008-09, the installed capacity for crude steel was estimated at 64.4 million tonnes, while
production was estimated at 54.5 million tonnes, resulting in an 85 per cent capacity utilisation.
92%
91% 91%
utilisation
Capacity
90% 91%
88% 89%
86%
85%
84%
82%
2004-05 2005-06 2006-07 2007-08 2008-09
9
MARKET OVERVIEW
Steel April 2010
• Long-products constituted 57 per cent of the total finished steel consumption, while the remaining 43
per cent was constituted by flat-products in 2007-08.
Manufacturing
13%
Automobile 11%
Others 17%
Sources: MoS, GoI, annual report 2008-09; JSW Steel, annual report 2007-08
10
MARKET OVERVIEW
Steel April 2010
• The construction sector, accounting for 39 per cent of the sales of the total galvanised products in
2007-08, is expected to drive the demand for galvanised plain coils and corrugated sheets.
Manufacturing 7%
Automobile 5%
Others 14%
Sources: MoS, GoI, annual report 2008-09; JSW Steel, annual report 2007-08
11
MARKET OVERVIEW
Steel April 2010
• The demand for flat steel in the automobile sector continues to rise exponentially.
Manufacturing 20
%
Automobile
20
Others %
21%
Sources: MoS, GoI, annual report 2008-09; JSW Steel, annual report 2007-08
12
MARKET OVERVIEW
Steel April 2010
• India's steel sector has a competitive advantage vis-à-vis the availability of raw material and
workforce, both skilled and unskilled. Iron ore and coal constitute the primary raw materials for
steel production.
• India is endowed with large reserves of iron ore. The iron ore-rich states of India are
Orissa, Jharkhand and Chhattisgarh. The National Minerals Development Corporation (NMDC)
plans to expand its iron ore production capacity from its current capacity of 30 million tonnes per
annum (MTPA) to 50 MTPA by 2014-15 through the capacity expansion of existing mines as well as by
setting up new mines.
• The total coal production, including raw coal and lignite, stood at 525.3 million tonnes in 2008-
09, and increased at a CAGR of 6.2 per cent between 2004-05 and 2008-09. The key raw material for
the production of steel is metallurgical coal, which accounts for 17 per cent of the country's coal
reserves.
• India has a strong workforce base, with about 40 per cent of the country's population constituting
its labour force.
Sources: "Employment in Organised Industry: Engineering Sector contributes the most," Engineering Export Promotion Council
website, www.eepc.org, accessed January 6, 2010; "Provisional Coal Statistics 2008-09," Ministry of Coal, GoI; "World Factbook — India," CIA
website, https://www.cia.gov/index.html, accessed May 15, 2010
13
MARKET OVERVIEW
Steel April 2010
• The construction sector is a major consumer of long-products such as rods, bars/coil sections, wire
and reinforcing.
• The construction industry is expected to regain momentum over the next few years, with the
Indian Government laying emphasis on infrastructure development and increasing expenditure on
development activities across sectors.
• The Eleventh Five Year Plan (2007-2012) has allocated investments worth US$ 490 billion for the
core infrastructure sector, comprising power, roads, highways, railways, ports, airports, mining and
irrigation.
Source: Indian Engineering and Construction Industry Study — Financial Year 2007-2008, Ernst & Young
14
MARKET OVERVIEW
Steel April 2010
• India is the world's second-largest manufacturer of two wheelers and the fifth-largest manufacturer
of commercial vehicles. Car and multi-utility vehicle production stood at 1.8 million units in 2008- 09,
registering a 4 per cent growth over 2007-08.
• The automotive sector in India is witnessing growth and is expected to register strong growth in
both the domestic market and export segments.
• Low-cost passenger cars are expected to lend a significant impetus to domestic demand.
• The production of passenger and commercial vehicles is expected to reach 4.9 million, and two and
three-wheeler production is expected to reach 36.5 million by 2016, further driving the demand for
the flat steel segment.
Sources: "Industry statistics," Auto component Manufacturers Association website, www.acma.org, accessed January 28, 2010
15
MARKET OVERVIEW
Steel April 2010
• India's oil and gas sector is on an expansion mode, with the demand outstripping supply and
companies aiming at increasing the gas grid network. This sector is expected to raise the demand for
the long-products segment — pipelines.
• India had total reserves of 775 million metric tonnes (MMT) of crude oil and 1,074 billion cubic
metres (BCM) of natural gas as on April 1, 2009. The Krishna-Godavari (KG) basin has been a
potential zone for oil and gas extraction and has gained further significance due to the back-to-back
oil exploration and extraction successes of several oil majors such as Reliance Industries Limited
(RIL), Oil and Natural Gas Corporation (ONGC) and Gujarat State Petroleum Corporation
(GSPC).
• The three KG basin gas discoveries by RIL are expected to result in a quantum leap towards achieving
India's energy security by accounting for 40 per cent of the country's current hydrocarbon
production, also leading to reduced dependence on external sources.
• The volume build up is expected to translate into potential pipeline demand for laying of the
transportation networks for both liquid and gas fuel distribution. Apart from the long-product
pipeline demand, the oil and gas sector is also expected to drive the demand for steel used in the
construction market due to the increase in refinery capacity.
Sources: "Basic Statistics on Petroleum and Natural Gas, 2008-09," Ministry of Petroleum & Natural Gas, GoI; Indian Engineering and
Construction Industry Study — Financial Year 2007-08, Ernst & Young
16
MARKET OVERVIEW
Steel April 2010
Key trends
• Capacity additions in the industry over the past five years are primarily a result of
brownfield expansions.This can be attributed to the relatively lower investment
Capacity commitment compared to the greenfield expansion.
• Tata Steel added 1.8 million tonnes capacity to their crude steel production through
addition and brownfield expansions to reach 6.8 million tonnes. It plans to add another 3 million
expansion tonnes to reach a capacity of 10 million tonnes.
• JSW Steel is expanding its Vijayanagar plant (Karnataka) through brownfield expansion to
reach a production capacity of 9.6 million tonnes by 2010.
• Players are introducing latest technologies such as high top pressure, high blast
temperature, pulverised coal injection, attention to burden preparation and distribution
and higher use of sinter in place of lumps for reducing coke consumption in blast furnaces
Technology
and improving productivity.
upgrades • Currently, players are producing steel with a lower content of oxygen, nitrogen and
hydrogen by introducing technologies such as ladle metallurgy and vacuum
degassing, among others.
• The demand-supply gap in the domestic market is increasing at a faster pace than the
Focus on export growth, translating into a better opportunity for players to tap the existing
domestic domestic market.
market • India and China are the only countries to have registered positive growth in steel
production in the period between January and March 2009.
• The Indian steel industry is consolidated, with Player-wise steel production for 2008-09
the three main producers accounting for 40 per
cent of the total production of crude steel in 2008-
09.
SAIL 25
Tata Steel %
• The public sector companies contributed 30 per 10
cent to the total crude steel production. RINL
%
Major producers
5
• SAIL and Tata Steel have captive iron ore mines in Mini plants
India to cater to the domestic steel %
manufacturing plants, while other players rely on 16
NMDC and other domestic players for their iron ore %
requirement. 44
%
Steel manufacturers
Main producers Major producers Mini plants
• Electric arc furnace
(EAF) based units —
• Steel Authority of • JSW Steel Ltd
33 working units
India Ltd (SAIL) •• Essar Steel Ltd
• Ispat Industries Ltd • Induction furnace-
• Rashtriya Ispat
based units — 970
Nigam Ltd Jindal Steel & Power
working units
• Tata Steel Ltd Ltd
• MBF*-ETF** based
units — two units
19
MARKET OVERVIEW
Steel April 2010
Sales
Company Products
(2008-09)
US$ billion (INR
billion)
Jindal Steel & Power Ltd 2.47 (119) Iron and steel
Ispat Industries Ltd 1.98 (95) Hot rolled coils, strips, sheets
20
STEEL April 2010
Contents
Advantage India
Market overview
Industry infrastructure
Investments
Opportunities
Industry associations
21
INDUSTRY INFRASTRUCTURE
Steel April 2010
Jajpur, Orissa
Source: "Formal approvals granted in the Board of Approvals after the SEZ rules coming into force as on 15 January 2009," Special economic
zones in India website, www.sezindia.nic.in, accessed January 5, 2010
22
STEEL April 2010
Contents
Advantage India
Market overview
Industry infrastructure
Investments
Opportunities
Industry associations
23
INVESTMENTS
Steel April 2010
Investments … (1/2)
Steel Ltd by Arcelor Mittal for US$ 82.3 million Deal type No of deals Largest deal value (US$
in September 2009. million)
Inbound 3 82.3 97.9
• The largest outbound deal announced was the Outbound 14 32.1
acquisition of Rocklands Richfields Ltd by Jindal
Domestic
Steel and Power Ltd for US$ 97.9 million in
September 2009.
Sources: Bloomberg, accessed December 4, 2009; "Fact Sheet On Foreign Direct Investment (FDI)," Department of Industrial Policy and
Promotion website, www.dipp.nic.in, accessed January 7, 2010; Ernst & Young analysis
24
INVESTMENTS
Steel April 2010
Investments … (2/2)
• 222 MoUs that have been signed by various states with steel producers for a planned capacity of
about 275.7 million tonnes.
Contents
Advantage India
Market overview
Industry infrastructure
Investments
Opportunities
Industry associations
26
POLICY AND REGULATORY FRAMEWORK
Steel April 2010
• The government also removed price and distribution controls in the sector, and the price is now
determined by the demand-supply dynamics. However, the government controls the excise, import
and export duty levies.
• Some of the initiatives taken by the government to promote the steel sector include:
• The national policy seeks to facilitate the removal of procedural and policy bottlenecks
that affect the availability of production inputs, increased investment in research and
development, and the creation of road, railway and port infrastructure.
• The policy focusses on the domestic sector, but also envisages a steel industry growing
at a faster pace than the domestic consumption, which will enable export
opportunities to be realised.
• According to the revised estimates of the MoS, the steel production capacity in the
country is expected to be nearly 124 million tonnes by the year 2011-12.
27
POLICY AND REGULATORY FRAMEWORK
Steel April 2010
• The Planning Commission has approved a total outlay of US$ 9.5 billion (INR 456.1
billion) for the development and promotion of the iron and steel sector.
• The 'scheme for the promotion of research and development in the iron and steel
sector' has been approved with a budgetary provision of US$ 24.6 million (INR 1,180
million) for implementation.
28
STEEL April 2010
Contents
Advantage India
Market overview
Industry infrastructure
Investments
Opportunities
Industry associations
29
OPPORTUNITIES
Steel April 2010
Opportunities … (1/2)
• The rising costs of coal and crude oil have resulted in a shift towards the use of alternate fuels. To
leverage this opportunity, companies are investing in building a pipeline network for gas
distribution.
• The setting up of refineries requires investment in pipe networks to transport crude oil and refined
products, resulting in heightened demand for steel pipes and tubes.
• The increasing investments by the state governments in water and sewage pipes infrastructure
management are also expected to augment the anticipated demand.
30
OPPORTUNITIES
Steel April 2010
Opportunities (2/2)
Structural steel
• Steel majors such as JSW Steel and Tata Steel are investing to enhance the capacities of products
such as TMT bars (rebars).
• Pre-engineered buildings (PEBs) are also increasingly gaining prominence in the industrial
construction area due to the ease of on-site erection and in-house design and fabrication.This
segment has opportunities for products such as steel plates, galvanised, colour-coated and
galvalume products.
31
STEEL April 2010
Contents
Advantage India
Market overview
Industry infrastructure
Investments
Opportunities
Industry associations
32
INDUSTRY ASSOCIATIONS
Steel April 2010
Industry associations
33
INDUSTRY ASSOCIATIONS
Steel April 2010
Note
Wherever applicable, numbers in the report have been rounded off to the nearest whole number.
Conversion rate used: US$ 1= INR 48
34
STEEL April 2010
DISCLAIMER
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has been prepared by Ernst & Young in consultation with belief, the content is not to be construed in any manner
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35